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Your client John comes to see you in July 2014 asking to prepare his income tax return forthe year ended...

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Your client John comes to see you in July 2014 asking to prepare his income tax return for;the year ended 30 June 2014. His shoebox of receipts, invoices and other paperwork;reveals the following information;John purchased a house on 26 August 1987 for a cost of $170,000 and also incurred legal;costs of $1,500 and stamp duty of $4,400 in relation to the purchase. John lived in the;house as his main residence until 31 July 2003, at which time he moved interstate for;work. The market value of the house at this time was $230,000.;From 1 August 2003 until 30 April 2014 the house was rented out to different tenants, the;last of whom damaged the home. The following costs were incurred in May 2014 to rectify;the damage to the house;$;Replacing carpet on lounge room floor 800;Repairing holes in walls of 2 bedrooms 1,200;Repainting the entire inside of the house 3,000;Professional cleaning of the whole house 700;Replace bathroom vanity and basin 1,500;After this work was completed John decided to sell the house because he no longer;wanted to deal with irresponsible tenants. He sold the house on 15 June 2014 for;$300,000 less commission of $2,200.;John also sold on 15 June 2014 his 550 shares in Commonwealth Bank for $44,000. Of;these shares, 500 were originally acquired in September 1991 at a cost of $5.40 per;share. The remainder were acquired in a 1 for 10 bonus share offer in October 2000;which were issued from the company?s share capital account.;In addition to the above transactions, John had the following income and expenses for the;year ended 30 June 2014;Income $;Salary (occupation ? sales representative) 54,000;Entertainment allowance 3,000;Rental income from the house mentioned above 16,200;Reimbursement of water rates for this property (by tenant) 320;Franked dividends from Commonwealth Bank shares 2,106;Family Tax benefit (for his 4 year old son) 5,200;Cash received from deceased grandmother?s estate 15,000;(Continued on next page);Expenditure $;Meals incurred when entertaining clients in his job as a sales;representative for his employer 1,800;Purchase of work clothing and shoes 380;Child care costs (approved care for his 4 year old son) 4,800;Purchase of a mobile phone 1 October 2013 (used 80% for work purposes) 750;Monthly call costs on his mobile phone (above) 600;Train tickets for travelling to and from work 150;Rates on the rental property 1,200;Insurance on the rental property 850;Income protection insurance 650;Life insurance 180;Legal fees in relation to sale of rental property 1,100;Tax Agent fees (including $700 advice regarding sale of rental property) 1,000;Brokerage costs in relation to sale of shares in Commonwealth Bank 250;Medical expenses for himself and his son (including $1,200 hospital costs;$900 doctor visits, $1,800 dental work, $720 remedial massage;costs not prescribed by doctor, $800 prescription sunglasses) 5,420;Amounts refunded by health fund and Medicare $1,500;John?s PAYG Payment Summary shows PAYG withholdings for the year 9,097;REQUIRED;1. Discuss the tax implications of the sale of rental property, including any exemptions;available and the deductibility of the costs to rectify damage. Calculate the;assessable gain, if any.;2. Discuss the tax implications of the sale of the Commonwealth Bank shares.;Calculate the assessable gain, if any.;3. Discuss the assessability and deductibility of all the other items listed in the;information.;4. Calculate John?s taxable income for the year ended 30 June 2014.;5. Calculate the tax payable/(refundable) for John for the year ended 30 June 2014;including all additional levies and tax offsets.;NOTE;You must support your discussion and interpretation with reference to legislation, cases or;rulings.

 

Paper#79564 | Written in 18-Jul-2015

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